The month is not over yet and the account is already ebb: a situation that many are familiar with. If the urgently needed car breaks down, consumers are often faced with a problem: They need a small loan that conventional banks are usually not profitable enough. For some years now, providers like Spin Lender have recognized the gap in the market for small bucks and have been offering short-term loans. The principle: The lender borrows a few hundred euros, which the borrower repays in one short amount – usually 30 days. But such a short-term loan has its pitfalls. And you should know that before you take out a short-term loan lightly.What distinguishes a short-term loan?
A short-term loan has three important characteristics that distinguish it from a regular loan:
1. Short loan term
The standard term of a short-term loan is 30 days. Depending on the provider, additional terms, for example 15 or 60 days, are offered. Often there are also special rules for existing customers who are allowed to redeem a little longer.
2. Low loan amount
Mostly small amounts from $ 100 are awarded. New customers usually get no more than $ 500 to $ 600 as a loan. Anyone who has already repaid several short-term loans on time can borrow slightly higher amounts.
3. Uniform, high interest rate
The interest rate for a short-term loan is – depending on the provider – between 8% and 14% effective interest per year. Due to the short term, the interest is calculated accordingly. The interest rate is usually fixed, regardless of whether you receive $ 100 or $ 200.
Only the overdraft facility is more expensive
Even if the interest burden is not very high due to the low loan amount – the effective interest rate of a short-term loan is much higher compared to conventional installment loans. Often you only pay more for an overdraft facility or overdraft facility credit – the overdraft facility on the checking account. You should therefore only use the overdraft facility in exceptional cases. Are you permanently in the red, but even a short-term loan is not a sensible solution. It is cheaper to borrow a larger sum by installment loan. If you do not receive an installment loan from your bank, you should seek advice from a debtor.
Special requests are particularly expensive
Providers of short-term loans not only earn on loan interest, but above all also on the sale of additional services such as the 2-installment option or immediate payment via ExpressService. And even if these are options, in many cases they meet the needs of a typical, financially weak short-term borrower. After all, he is concerned with the fast – ideally immediately available – money.
Possible additional services are, for example:
- Installment option : If you also book an installment payment, you can repay the loan amount in two installments. Flat-rate costs: approx. $ 39 – $ 49.
- Express transfer : With this additional option, the customer receives the loan amount within a very short time – often on the same or at the latest on the next working day. For this, providers estimate around 39 $.
- Preferred processing : Your application will be prioritized and processed faster. Cost point: approx. $ 35.
Those who need to have the loan as quickly as possible will therefore not be able to avoid paying additional fees that make the loan more expensive. If you do not repay the loan amount on time, there is a risk of an expensive dunning procedure.
Providers advertise with flexible lending
Beware of frivolous borrowing
More flexible lending criteria can tempt people with poor credit ratings to take out a loan that you cannot then repay. In order to avoid debt traps, it is therefore important that you remain realistic with a short-term loan and only borrow money if you can settle your debt on time.
Short-term loan providers are less strict than conventional banks due to the lack of legal regulation for lending. Customers with “light” KSV entries can therefore also receive a short-term credit. What this means in detail depends on the individual case and provider. On the website of short-term loan providers you can often find out about the guidelines for dealing with KSV entries. But despite more flexible lending, people who are already heavily over-indebted are mostly excluded from the mini-credit business.
For whom can a short-term loan make sense?
A short-term loan has its price. However, it can be practical in emergency situations. An example: You have to bridge a financial bottleneck at short notice because your car is broken and the necessary small change is missing until the next salary receipt. A possible alternative in such a situation would be a personal loan or an installment loan. However, if this is not an option for you, a short-term loan can be justifiable in exceptional cases.
However, a short-term loan only makes sense if you can pay it on time and in one amount with the next salary receipt. And that without getting into financial difficulties again. If this is not guaranteed, the cost of credit rises massively and the borrower faces a spiral of debt in which one loan replaces the next. Therefore, in the event of financial problems, it is better to contact a public debt counseling service and look for an individual solution instead of taking out a loan that can ultimately exacerbate the financial situation.
If the creditworthiness is correct, it is advisable to use a conventional installment loan to bridge a financially difficult phase. Because if you don’t pay high additional costs, you also have to wait for a short-term loan for a few days or longer. It is therefore not necessarily faster with a short-term loan. For those in a particular hurry, an instant loan, which many banks now offer, could be an alternative. First, get an overview of the offer with an online loan comparison. In particular, there are attractive loan offers on the Internet that you can take out directly from the provider.